Why Domino's Pizza and Delta Air Lines Hint at a Stronger Economy

The third-quarter earnings season is expected to be dismal, but results from several companies show it's not all doom and gloom.

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(Image credit: Getty Images)

We're still in the earliest stages of what is projected to be a brutal third-quarter earnings season, so let's not get ahead of ourselves. But companies as disparate as Domino's Pizza (DPZ, $320.91) and Delta Air Lines (DAL, $31.00) are hinting at a stronger economy ahead.

Which is what we should expect based on official projections of economic growth. The Federal Reserve forecasts real, or inflation-adjusted, gross domestic product to increase a meager 0.2% this year, but then accelerate to 1.2% in 2023. 

True, that's still below trend, but it would represent a significant improvement over what we've slogged through in 2022. Remember, GDP declined by 1.6% and 0.6% in the first and second quarters, respectively, of the current year.

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And although companies remain cautious in their outlooks, as noted above, a wide swath of them are reporting silver linings in their operations.

Take Domino's, for example. In addition to logging better-than-expected quarterly revenue growth, Domino's indicated that pressure from rising input costs appears to be abating. The pizza chain stuck with its previous forecast for food cost inflation of between 13% and 15%. 

That is potentially a big deal. Perhaps inflationary pressures are indeed easing, as the Federal Reserve so desperately wants to see. 

Separately, Delta is benefiting from consumers' pivot back toward services and experiences and away from goods. The airline posted record third-quarter revenue and said it sees no sign of a slowdown. 

"The demand for air travel remains very strong," Delta CEO Ed Bastian said on a conference call with analysts. "After two years of delaying travel, it is clear that consumers are getting out and traveling the world."

A reduction in demand for goods should also alleviate some key inflationary pressures. 

Meanwhile, over in the financial sector, earnings reports from some of the nation's biggest banks easily topped Wall Street estimates, leading some analysts to say it's time to buy bank stocks

To be sure, DAL and DPZ are hardly a representative sample of what we're seeing in the aggregate this earnings season, which, at least so far, hasn't been so hot.

"The start of the third quarter earnings season for the S&P 500 has been weaker than normal, as the number and magnitude of positive earnings and revenue surprises have been smaller than recent averages," notes John Butters, senior earnings analyst at FactSet.

But DAL and DPZ do serve to underscore the fact that the outlook is not uniformly one of doom and gloom. The U.S. economy is wide and deep. You can pretty much always find pockets of strength somewhere. 

Bottom line? If we are indeed headed for recession, the early reports from Q3 earnings season are far from providing conclusive evidence.

Dan Burrows
Senior Investing Writer, Kiplinger.com

Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.

A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.